Can Directed Innovation Mitigate Climate Damage? Evidence from US Agriculture

Abstract

We study how innovation reacts to climate change and shapes its economic impacts, focusing on US agriculture. We show in a model that directed innovation can either mitigate or exacerbate climate damages depending on competing equilibrium effects. To test the model's predictions, we combine data on the geography of agricultural production, shifting temperature distributions, and crop-specific temperature tolerance to estimate crop-specific exposure to damaging extreme temperatures; we then use a database of crop-specific biotechnology releases and patent grants to measure technology development. We find that new technology has systematically re-directed toward crops with increasing exposure to extreme temperatures and that a given county’s exposure to new innovation, measured by the extent of climate-induced innovation for locally grown crops, significantly dampens the economic damage from extreme temperatures. Our estimates imply that directed innovation has negated 20% of the damage from climate change on US agriculture since 1960, and will negate 15% of the damage from projected climate change over the 21st century. The results, taken together, highlight the vital importance—but incomplete effectiveness—of endogenous technological change as a systemic adaptive response to climate change.

Keywords: climate change, innovation, adaptation

JEL Classification: O31, Q54, Q55, Q10